UK begins consultation on removal of oil royalty

Jul 11, 2002 02:00 AM

Consultation began on the timing of the abolition of historic levy on North Sea oil and gas production, which could
save licensees £ 200 mm a year. The abolition of the North Sea Royalty was announced by the chancellor, Gordon
Brown, in his April Budget.
It was designed to sweeten the pill for producers of the introduction of a 10 % supplementary charge on profits,
which it is estimated could cost them as much as £ 500 mm (EUR 784 m).

The energy minister, Brian Wilson, said the abolition of the royalty would “simplify and modernise the North
Sea fiscal regime”. The 12.5 % royalty on the gross value of all oil and gas won in a licence area applies only
to fields licensed for development before 1982.
The North Sea industry has a complex tax structure, with different developments supplying varying levels of revenue
to the chancellor depending on their age. Some fields going back 20 years or more can pay as much as 70 % in various
levies, while modern developments are taxed at a lower rate.

Mr Wilson said: “The industry has welcomed the government's decision to abolish the royalty on North Sea oil
and gas production as part of the package of changes announced in April by the chancellor. “Royalty applies
only to older fields and its abolition will simplify and modernise the North Sea fiscal regime. Together with the 100
% first-year allowance for capital expenditure, it is designed to promote long-term investment and ensure a healthy
future for the UK's oil and gas industry.”
“The measure would be worth around £ 200 mm in the next year to licensees. A number of dates of abolition
have already been suggested and we are studying these closely. But, for the consultation process to be complete, all
connected with the industry must have the opportunity to make formal representations with their views.”

Interested parties have until October 4 to respond to the consultation paper published by the Department of Trade and
Industry in conjunction with the Treasury and Inland Revenue.